Rupee breaches 74 as RBI holds rate

The bank are predicted to act to tackle rising USA interest rates, capital outflows from emerging markets and India's weakening balance of payments and current account deficit. The rupee has lost 110 paise or 1.51% in the three sessions since Monday largely due to strong demand dollar demand from oil importers amid firming oil prices and foreign capital outflows. In a clear indication that it is not yet done with rate increases, the central bank changed its stance to "calibrated tightening" from "neutral" that was in place since February 2017, Bloomberg reported.

The meeting assumes significance as the rupee has hit an all-time high of 73.74 against the United States dollar, which would raise India's import bill and widen the trade deficit (difference between imports and exports).

Oil prices stood around four year highs on Thursday.

The Indian rupee slumped to a new all-time low of 74.23 against the US dollar, weakening from around the 73.65 ahead of the RBI policy statement.

The central government and mostly BJP-led states announced a cut in excise and Value-Added Tax rates to reduce fuel prices by 5 per litre.

The benchmark Sensex plunged by 527.94 points, or 1.39 per cent, to 35,447.69 in morning deals. "We rule out a hike of 50 basis points, as it may spook the market".

She said: "For bond markets, a 25 bps hike accompanied by a hawkish stance could trigger the 10-year bond yield to rise to 8.25 percent". "The RBI is ready to keep real rates high because the policy mandate is to anchor inflation", said Anindya Banerjee, deputy vice president, currency derivatives at Kotak Securities. The comments raised the possibility of another Bank Indonesian rate hike before mid-December although it has already raised interest rates five times since mid-May.

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